1. What is the Liquidity Coverage Ratio?

The Liquidity Coverage Ratio (LCR) is a financial regulation standard that requires banks to hold enough high-quality liquid assets (HQLA) to cover their total net cash outflows over 30 days. It's designed to ensure financial institutions can withstand short-term liquidity disruptions.

2. How Does the Calculator Work?

The calculator uses the LCR formula:

Where:

• High Quality Liquid Assets (HQLA) — Cash and assets that can be easily converted to cash
• Total Net Cash Outflows — Expected cash outflows minus inflows over 30 days

Explanation: The ratio measures a bank's ability to meet short-term obligations during a liquidity stress scenario.

3. Importance of LCR Calculation

Details: Basel III regulations require banks to maintain an LCR of at least 100%. This ensures financial stability and reduces systemic risk in the banking sector.

4. Using the Calculator

Tips: Enter HQLA and total net cash outflows in USD. Both values must be positive numbers. The calculator will compute the LCR percentage.

5. Frequently Asked Questions (FAQ)

Q1: What qualifies as High Quality Liquid Assets?
A: HQLA includes cash, central bank reserves, and marketable securities that can be easily converted to cash with minimal loss of value.

Q2: What is considered a good LCR?
A: The Basel III standard requires a minimum LCR of 100%, meaning banks must hold at least as much HQLA as their net outflows over 30 days.

Q3: How often should LCR be calculated?
A: Banks typically calculate LCR daily for regulatory reporting purposes, though the standard applies to a 30-day stress scenario.

Q4: What's the difference between LCR and NSFR?
A: LCR measures short-term (30-day) liquidity, while Net Stable Funding Ratio (NSFR) measures long-term (1-year) liquidity.

Q5: Are all banks required to maintain LCR?
A: Generally, only internationally active banks are subject to LCR requirements, though some jurisdictions apply it more broadly.